Maximum tenor

Every exchange-traded contract has a life. It is launched, it trades, it expires.

For a commodity index derivative, SEBI puts a ceiling on that life. The maximum tenor of an index futures contract shall not exceed 12 months.

Inside that ceiling the exchange is free. The workbook says contracts may be started on the launch date for 1 month, 2 months, 6 months and 12 months.

The same ceiling applies on the options side. SEBI has permitted recognised stock exchanges with a commodity derivatives segment to introduce commodity index options of up to 12 months expiry.

So a candidate needs one number here, and it covers both products.

Why have a ceiling at all? A longer contract is harder to margin and harder to keep liquid, and the index it tracks is rebalanced every year anyway. A contract outliving its own index's weights would be tracking something that no longer exists.

The rule. The maximum tenor of the index futures contract shall not exceed 12 months. Contracts may be launched for 1 month, 2 months, 6 months and 12 months. For options, SEBI's circular dated 24 March 2022 specified the product design and risk management framework for options on commodity indices and permitted exchanges to introduce commodity index options of up to 12 months expiry, on underlying indices that conform to SEBI's index construction guidelines.

The other contract parameters the 12 months sits beside, all from the same list:

On the options side the position limits are double those of index futures in both percentage and lots: 10% of open interest subject to a minimum of 2,000 lots at client level, and 30% subject to a minimum of 20,000 lots at member level. Index options are European-style with a minimum of three strikes available for trading, and are cash settled on expiry.

Why 12 months and not more, read against the index itself. Index weights and constituents must be reviewed and rebalanced at least once a year, and both NCDEX and MCX use the calendar year as the rebalancing period. A rebalanced index keeps its value but changes its constituents and weights. A tenor longer than a year would therefore straddle a rebalancing, and the workbook separately requires that an index option's expiry date shall not coincide with the roll-over of index constituents. The 12-month ceiling and the annual rebalancing cycle are the same year.

Note also what the ceiling does not govern. It is a rule for commodity index derivatives. The workbook states no equivalent single tenor cap for individual commodity futures, whose contract launch calendar comes from each contract's own specification.

MCX launches index futures on its bullion index on 1 January 2026, with the index at a base of 1,000.

Now check the lot on the 12-month contract, because the tenor rule and the Rs 5 lakh rule interact. On the launch date the lot is 500 units at an index of 1,000:

500 x 1,000 = Rs 5,00,000 — exactly at the Rs 5 lakh floor.

Suppose the index falls to 880 by the rebalancing date of 1 January 2027. The lot would then be worth:

500 x 880 = Rs 4,40,000

which is Rs 60,000 short of the floor. The lot size in units has to be raised at that rebalancing — to 569 units, since 569 x 880 = Rs 5,00,720 — for the new year's contracts.

Here is why the 12-month ceiling matters commercially. A contract launched on 1 January 2026 and expiring 31 December 2026 lives entirely inside one set of index weights. An 18-month contract would still be open when the index is rebalanced on 1 January 2027, so its holder would be marked against an index whose constituents and weights had changed underneath him. A trader long 4 lots at 1,000 who woke up to a rebalanced basket would find his Rs 20,00,000 of exposure pointed at a different mix of metals from the one he bought.

Chapter 2 (Commodity Indices), section 2.4 on trading in index futures, point 4 of the contract parameters, and section 2.6 on trading in index options, which repeats the 12-month figure for options.

This is straight recall and it is cheap to secure: the maximum tenor of a commodity index futures contract shall not exceed ____ — 12 months. The follow-up asks which tenors may be launched inside it (1, 2, 6 and 12 months), and the options version asks the maximum expiry SEBI permitted for commodity index options in its 24 March 2022 circular — again 12 months. Examiners like to set this alongside the Rs 5 lakh lot value and the position limits from the same list, so learn the whole parameter table together.

• Twelve months is a ceiling, not a standard tenor. Contracts may be launched for 1, 2, 6 or 12 months, and nothing obliges an exchange to list the 12-month one.
• The same 12 months applies to index options. Candidates learn it for futures and then hesitate on options, where SEBI's 24 March 2022 circular permits up to 12 months expiry.
• It is a rule for index derivatives. The workbook does not state an equivalent single tenor cap for individual commodity futures.
• Do not confuse the tenor with the lot value test. The Rs 5 lakh minimum is checked on the launch date and at each rebalancing date, not against the contract's tenor.
• Option position limits are double the futures limits, in percentage and in lots — 10% or 2,000 lots at client level against 5% or 1,000 lots for futures. Same 12-month tenor, different limits.
• On the expiry date index futures trade only up to 5:00 pm, whatever the tenor, and index options expire at 5:00 pm on the expiry day.
• An index option's expiry must not coincide with the roll-over of index constituents. The tenor ceiling and that prohibition both exist to keep a contract from straddling a change in the index itself.